Next has been the latest retailer lower sales and profit forecasts in the face of slowing economic conditions.
After recording a 16% increase in profit before tax to £401m in the first half of 2022, the retailer says they are now lowering their full year profit guidance to £840m from £860m.
Next provided a detailed explanation of the now all too familiar economic pressures causing a downgrade in their guidance including rising prices, cost of living crisis and raised concerns about performance in August.
As the retailer said they saw sales being down 2% this, they did provide the caveat that government actions still had the ability to support the Uk consumer, in which case their 2% drop in sales would be too pessimistic.
Nevertheless, the combination of a reduced profit guidance and a backdrop of market volatility saw Next shares down 10% in early trade on Thursday.
Declining retail sales
Next joins a raft of consumer facing companies recently lowering their outlook. Boohoo this week warned on profit and ASOS have also said they see conditions deteriorating.
However, analysts note that Next’s outlook will be of particular concern for investors due to their place in the psyche of markets.
“Next is seen as a bellwether of the UK High Street and today’s cut to full year guidance lays bare the challenges being faced. Asos and Boohoo’s trading performance has been nothing short of dire. Even Primark’s recent trading update called out significant margin pressures. In this context, Next’s half year results are more resilient than most,” said Charlie Huggins, Head of Equities at Wealth Club.
“The fact that many retailers are struggling shouldn’t be a surprise. This is arguably the most difficult trading environment since the 2008/09 financial crisis. Inflation is at levels not seen for four decades. Sterling is in the doldrums, trading at its weakest level against the dollar since 1985. Add to this, the war in Ukraine and the spectre of further interest rate rises. It’s not exactly conducive to consumers restocking their wardrobes.”